Faced with the prospect of paying for expensive education reforms, Baltimore leaders questioned Thursday night whether to revisit a long-term, multimillion-dollar deal under which major nonprofit institutions make annual payments to the city instead of paying taxes.
A 2016 memorandum of understanding arranged for Baltimore’s medical and educational “anchor institutions” to pay the city $6 million annually over the next decade, acknowledging that the nonprofits benefit from city services even though they don’t pay property taxes. These institutions collectively own more than $5 billion worth of property, city documents state. If that was taxed, it would bring the city about $120 million a year.
Local union leaders and advocates say this “payment in lieu of taxes” shortchanges the city and the deal’s terms must be renegotiated. Activists rallied outside City Hall ahead of Thursday’s hearing to demand that Johns Hopkins, the University of Maryland Medical Center and a dozen other nonprofits pay more.
“It’s time for the city to reopen the PILOT agreement and make them pay their fair share,” said Terrel Askew, a member of the Fair Development Roundtable and United Workers, in an interview. “This is one step the city can take to end the war on Baltimore’s poor and work toward building a healthier present and a more equitable future.”
The deal says the city won’t assess new taxes or costs against the institutions through 2026. The arrangement’s longevity was a huge reason local hospitals and universities agreed to sign on. Representatives of the nonprofits said that if the city tries to back out of their agreement, it would set a dangerous precedent.
“It’s disheartening to be at a point where there’s even a discussion that a deal might not be a deal,” said Alicia Wilson, Hopkins’ vice president for economic development.
The resolution calling for Thursday’s hearing stated the council must “consider the consequences — foreseeable and unforeseeable — that might arise from attempting to reopen and renegotiate a 10-year contract in its third year.”
Democratic Council President Brandon Scott said he scheduled the hearing for the full council, so it “can have the most open, transparent conversation possible and treat this issue with the seriousness that it deserves.”
However, any effort at striking a new deal would have to come ultimately from Democratic Mayor Bernard C. “Jack” Young, not the council. Lester Davis, a spokesman for the mayor, said Young will take a careful look at whatever recommendations the council sends his way.
Young and Scott are among the candidates running for mayor. Wilson is Scott’s campaign treasurer.
State Sen. Mary Washington, another Democratic mayoral candidate, attended the rally with members of nurses’ and teachers’ unions. She said the current deal is “not fair” and something that, as mayor, she would try to renegotiate as part of a broader effort to “reimagine our tax system in a way that’s equitable.”
The city’s finance department believes the group of universities and hospitals “significantly undercontribute for their share of city-provided services," according to a letter it filed with the council. Baltimore’s general fund pays for public safety, street management and other services around these institutions.
And the city’s chief solicitor, Elena DiPietro, said the deal only represents “a voluntary arrangement.”
“The terms of the agreement,” she said, “are not enforceable.”
The debate comes as Baltimore is under pressure to find hundreds of millions of dollars to pay for new and costly education initiatives.
A Maryland commission studying how to improve the state’s education system endorsed a plan last month that would eventually require $4 billion more to be spent each year on public schools. While the state would kick in billions to pay for the Kirwan Commission’s plan, local governments also would have to funnel millions more to their school systems.
Baltimore would nearly double its spending on public education under the plan, which still needs General Assembly approval. By 2030, that means the cash-strapped city would need to find roughly $330 million more per year to send to the school district.
Baltimore’s local income tax rate is already the highest allowable in the state, and raising the city’s already-steep property tax would be politically devastating for elected leaders.
“It’s important that we look at all possibilities for the city to cover our increased costs, whether that’s new revenue or cuts to existing programs,” Democratic Councilman Eric Costello said.
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Some city officials believe Baltimore is at a disadvantage because it’s home to nearly 19% of the state’s tax-exempt property. Roughly a third of its assessed property value is tax-exempt, according to the finance department.
“In the context of the current discussion about Kirwan education funding, we believe it is the right time to reconsider the state law that exempts nonprofits from property taxes,” the finance department wrote. “Generating additional contributions from nonprofit entities would help in meeting the city’s growing contribution.”
Wilson emphasized that Hopkins and the other anchor institutions pay parking, energy and telecommunications taxes. Levying more would “squeeze these institutions who try to do good, and are doing good,” she said.
The universities and hospitals contribute hundreds of millions of dollars in community work. Hopkins, for example, helps with a program that provides vision screening and eyeglasses to Baltimore public school students.
The council acknowledged in calling for the discussion that the nonprofit institutions “contribute significantly” to the city’s economy through local purchasing, construction projects and community investment.
But Democratic Councilman Ryan Dorsey said such institutions must give back to the community because of their tax-exempt status.
“Why,” he asked, “are we giving them extra credit for that?”